Save for a House or Contribute to a Retirement Savings Plan?

If you're planning to buy a home, you're faced with a quandry. Should you save for a house or contribute to retirement savings plans? Despite the advertisements for no money down mortgages, you're probably going to need a hefty sum to buy a house or condo, not to mention additional money to pay moving costs and the cost of accoutrements that make a house a home. In fact, given the recent spate of foreclosures due to risky lending practices, it's likely that would-be home buyers will have to ante up even more of a down payment than before.

Temporarily suspending retirement plan contributions to build up your housing fund is something that shouldn't be taken lightly, but buying a home is such a smart financial move that it may be justified. But before dropping your contributions entirely, keep in mind that it's possible to tap into almost all types of retirement savings plans to help finance a home purchase, including:
• Traditional IRA
• Roth IRA
• Workplace retirement plans, including 401(k), 403(b), tax sheltered annuity (TSA), and Federal Thrift Savings Plans (TSP)

Depending upon the plan, money can either be withdrawn or borrowed for purposes of buying a first home.

  • If your contemplated home purchase is still a few years away, divide your money between retirement plan contributions and savings.
  • If you're within a year or so of buying a house and need to boost your savings, temporarily curtail or suspend your retirement contributions. Invest the savings conservatively, however, since you're going to need the money fairly soon. Also, get back to making retirement contributions as soon as possible after you've moved into your home.

Other sources of down payment money. Here are a couple of additional ways to add to your down payment ante:

  • Life insurance policy loans. Borrow from life insurance policies that have cash value (term policies do not – you have to die to get any money from a term policy, in which case you won't need a home).
  • Family "loan." Last, but by no means least, request parental or grandparental assistance